Focus Worth Its Salt

Just like the fabled kid who was the only one with the cojones to yell, "The emperor is naked" - thus Leah Dankner, a "76-year old housewife," as Globes put it, was the only one who dared tell the naked truth.

Just like the fabled kid who was the only one with the cojones to yell, "The emperor is naked" - thus Leah Dankner, a "76-year old housewife," as Globes put it, was the only one who dared tell the naked truth. Others had thought the same but kept it to themselves: Dor Chemicals (TASE: DORC) is worth the price Ellern Investments (TASE: ELIN) is paying for it. Israel Salt Industries (TASE: SALT) is not.

"For that kind of money, you leave me the good company. You can keep the lousy one," auntie told her flabbergasted family.

It had taken the Dankners many moons, and endless talks with bankers, debt holders, and minority shareholders, to come up with the complicated mechanism they constructed to reorganize their affairs. Dozens of lawyers, accountants, capital market experts and at least one image consultant, were involved in creating the biggest inside deal the Israeli capital market had ever seen.

In the end, $215 million - about NIS 1 billion - were supposed to move from Ellern Investments and Ellern Holdings (TASE: ELHD) to the Dankner family, for which they would hand over the controlling stakes in Dor Chemicals, Salt Industries and Dankner Investment (TASE: DKNR).

But why was the family was so surprised by Leah Dankner's announcement? The prospectus that Ellern published in early September was crammed with warnings and comments regarding her noninvolvement in compiling the deal, and her options.

In any case, her announcement puts the whole reorganization in doubt, unless the parties reach some kind of compromise. Talks are ongoing.

For the moment, Leah Dankner has said she wants to sell her 15.5-percent stake in Salt Industries, which going by the Ellern deal is worth $29 million, and buy out the Dankners' stakes in Dor Chemicals (58 percent) for $38 million, again as priced by the Ellern deal. She already holds 15 percent of Dor's shares.

Her move makes sense, for her. Even though Salt Industries and Dor are not highly negotiable, the stock market evidently evaluates the two companies roughly the same as Leah Dankner does. Dor's controlling shares are valued at 25 percent below the price of the Ellern deal, while Salt Industries is going at 40 percent below that level.

Salt Industries's key asset is the 11.6-percent stake in Bank Hapoalim (TASE: POLI), which is worth over a billion shekels. But the company owes tremendous sums to Bank Leumi (TASE: LUMI), which it has to service over the years. Even if Hapoalim were to hand out dividends, it wouldn't wind up with the shareholders of Salt Industries. Salt Industries' shareholders equity is NIS 350 million, financing a balance exceeding NIS 2 billion.

In other words, Leah Dankner would have seen nothing at all from her Salt Industries stake.

Dor, on the other hand, after buying Moplefan of Italy and Shorko of Australia, is growing like a weed. It reported a (one-time) large profit of NIS 75 million for the first half of 2002 and is expected to present a profit of NIS 70 million a year. Its revenues have reached a billion dollars annually, and it can always issue one of its subsidiaries on the public market.

Leah Dankner recognized that the control premium her kin were asking for Dor is the lowest of all the three companies being sold to Ellern. One reason is that the Dankners were retaining the right to a substantial share in capital gains to be posted by Dor and Ellern in the future.

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